Bitcoin is a cryptocurrency and a payment system invented by an unidentified programmer, or group of programmers, under the name of Satoshi Nakamoto. Bitcoin was introduced on 31 October 2008 to a cryptography mailing list, and released as open-source software in 2009. There have been various claims and speculation concerning the identity of Nakamoto, none of which are confirmed. The system is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called the blockchain, which uses bitcoin as its unit of account.
Bitcoin is often called the first cryptocurrency, although prior systems existed and it is more correctly described as the first decentralized digital currency. Bitcoin is the largest of its kind in terms of total market value.
Bitcoins are created as a reward in a competition in which users offer their computing power to verify and record bitcoin transactions into the blockchain. This activity is referred to as mining and successful miners are rewarded with transaction fees and newly created bitcoins. Besides being obtained by mining, bitcoins can be exchanged for other currencies, products, and services. When sending bitcoins, users can pay an optional transaction fee to the miners. This may expedite the transaction being confirmed.
The blockchain is a public ledger that records transactions. A novel solution accomplishes this without any trusted central authority: maintenance of the blockchain is performed by a network of communicating nodes running the said coin’s software. Transactions of the form payer X sends Y bitcoins to payee Z are broadcasted to this network using readily available software applications. Network nodes can validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes.
The blockchain is a distributed database – to achieve independent verification of the chain of ownership of any and every token (amount), each network node stores its own copy of the blockchain. Depending on the block time of that token (in case of bitcoin- six times per hour), a new group of accepted transactions, a block, is created, added to the blockchain, and quickly published to all nodes. This allows the software of that token to determine when a particular amount has been spent, which is necessary in order to prevent double-spending in an environment without central oversight. Whereas a conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, the blockchain is the only place that the said token can be said to exist in the form of unspent outputs of transactions.
The word “altcoin” is an abbreviation of “Bitcoin alternative,” and thus describes every single cryptocurrency except for Bitcoin. Altcoins are referred to as Bitcoin alternatives because, at least to some extent, most altcoins hope to either replace or improve upon at least one Bitcoin component.
There are thousands of altcoins and more appear each week and month. Most altcoins are little more than Bitcoin clones or litecoin clone, changing only minor characteristics such as its transactions speed, distribution method, or hashing algorithm. For its survival it requires a strong community backing it.
The consensus problem is the problem of getting a set of nodes in a distributed system to agree on something – it might be a value, a course of action or a decision. The algorithm that helps to solve this problem is called Consensus mechanism. Algorithm is nothing but a set of rules pre defined for a specific use case. Bitcoin for instance uses Proof of Work Consensus mechanism to reach a particular decision.
Proof of work
A proof of work is a piece of data which is difficult (costly, time-consuming) to produce but easy for others to verify and which satisfies certain requirements. Producing a proof of work can be a random process with low probability so that a lot of trial and error is required on average before a valid proof of work is generated.
In bitcoin’s blockchain for a block to be valid it must hash to a value less than the current target; this means that each block indicates that work has been done generating it. Each block contains the hash of the preceding block, thus each block has a chain of blocks that together contain a large amount of work. The most widely used proof-of-work scheme is based on SHA-256 and was introduced as a part of Bitcoin.
Proof of Stake
A proof-of-stake (PoS) on the other hand is a type of algorithm by which a cryptocurrency blockchain network aims to achieve distributed consensus. Unlike Proof-of-Work (PoW) based cryptocurrencies (such as bitcoin), where the algorithm rewards participants who solve complicated cryptographical puzzles in order to validate transactions and create new blocks (i.e. mining), in PoS-based cryptocurrencies the creator of the next block is chosen in a deterministic (pseudo-random) way, and the chance that an account is chosen depends on its wealth (i.e. the stake). In PoS cryptocurrencies the blocks are usually said to be forged or minted, rather than mined. More the stake you have more are the chances of yours discovering a block and getting rewards. PoS is less suceptible to 51% attack becuase the attacker needs to acquire 51% stake of the coin in order to perform an attack.
A hash function is a function that can be used to map data of any size to a data of fixed size. The values returned by a hash function are called hash values, hash codes, digests, or simply hashes.
For example Bitcoin uses double SHA256 hashing Algorithm. A hash takes a chunk of data as input and shrinks it down into a smaller hash value (in this case 256 bits). The SHA (Secure Hash Algorithm) is one of a number of cryptographic hash functions.
A cryptographic hash is like a signature for a text or a data file. SHA-256 algorithm generates an almost-unique, fixed size 256-bit (32-byte) hash.
Most Important- Hash is a one way function – it cannot be decrypted back.
Their are many different type is hash functions that is used in Crypto world.
This is a small table of various cryptocoins and their Hash functions along with their Consensus mechanism.
Recent development happening in and around Bitcoin can be read in our FAQs